Sequential Screening with Type-Enhancing Investment

• 成果类型: Article
• 署名作者: LIu, Bin; Lu, Jingfeng
• 署名单位: The Chinese University of Hong Kong, Shenzhen; National University of Singapore
• 刊物名称: AMERICAN ECONOMIC JOURNAL-MICROECONOMICS
• ISSN/ISSBN: 1945-7669
• DOI: 10.1257/mic.20200171
• 发表日期: 2022
• 页码: 25-57
• 关键词: procurement

摘要

Due to the well-known efficiency-rent extraction trade-off, the optimal mechanism in a pure screening environment (e.g., rev-enue maximization in auctions or cost minimization in procure-ment) typically calls for distortions in allocative efficiency when agents possess private information at the time of contracting. In this paper we introduce first-stage type-enhancing hidden invest-ment to a standard sequential screening model of procurement, and find that (i) with convex investment cost, mitigation of allocative distortion must arise; and (ii) such mitigation can even be extreme with linear investment cost-procurement cost minimization must require social efficiency when the investment is sufficiently effective. (JEL D44, D82, H57)